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Growing appetite for acquisitions as vendor confidence returns

M&A activity strengthening

Third of businesses plan to grow through M&A

The latest research from the Grant Thornton International Business Report (IBR), a global survey of 5,400+ business leaders in 35 economies, finds strong M&A activity and set to grow further over the next 12 months. Businesses' M&A plans, both current and forecast, are becoming more focused as the quality of available targets improves and is matched by a five-year high in the willingness of potential vendors to contemplate a sale.

The IBR reveals that 33% of businesses are planning to grow through M&A over the next three years, a steady rise from 31% in 2013 and 28% in 2012. North American business leaders remain the most bullish (45%), ahead of Latin America (38%), Europe (32%) and Asia Pacific (22%). Meanwhile, 43% of business leaders seriously considered at least one acquisition opportunity over the past 12 months, up from 39% in the previous period.

Mike Hughes, global service line leader of M&A at Grant Thornton, commented:“The results confirm that the M&A market has rediscovered its vigour, with the most dynamic businesses embracing acquisitions as a vital growth tool. Despites some familiar challenges and uncertainties, underlying growth is relatively strong in many developed economies, while other key metrics such as interest rates, employment and availability of funding are also positive.

"That said, there are considerable regional variations - ranging from a bullish North American outlook to a fragile eurozone and less activity in some of the previous powerhouses such as China - indicating that transaction activity will be far from uniform across the globe."

Business leaders are increasingly looking to banks to fund growth according to the IBR. Retained earnings (62%) are still expected to be the largest source of finance, but the proportion of businesses planning to use bank debt to finance deals has risen to 57%, up from 48% this time last year. Meanwhile confidence is also rising on the vendor side: 14% of business leaders plan to sell up over the next three years, up from 11% in 2013 and 8% in 2012.

Mike Hughes added: "Historically the transaction market has been relatively cyclical but according to our research we may well now be at a point where the objectives and valuations of buyers and sellers are broadly aligned. The supply of available targets is clearly key for a successful M&A market but in recent years vendor confidence in achieving a successful exit has been low, driven by modest financial performance, valuation concerns and perceived transaction risks, such as availability of buyer funding.

"We have also seen a significant shift in the funding landscape with traditional bank funding more accessible and the rise of the alternative lending sector."